The Impact of Shadow Banks on the Commercial Bank Lending in India with Reference to the Housing Finance Sector.

Abstract

Significant variations of bank profitability in Indian commercial banks during the period 2009-2018 motivated the critical need to study the impact of shadow banking on the profitability of commercial banks in India. Shadow banking is defined as any institution that offer bank like activities but not regulated as banks. These institutions seem to be on the rise in India thus this research considered to investigate their implications to traditional banks’ profitability. The secondary data in this analysis covered a period of 10years from 2009 to 2018. The multiple linear panel regression model for the bank profitability measures; Return on Asset (ROA), was used as a dependent variable to analyze the data. Shadow banking ratios, variables were used as independent variables in the model. To measure if the loans given by banks to housing sector decreased as a result of housing finance companies, the net aggregate of loans disbursed by banks to housing sector and net aggregate of loans disbursed by housing finance companies were recorded for the past 5 years and significant analysis was made accordingly looking at the data .Shadow banking ratios were derived from monetary aggregates data that is M3, total bank loans and total bank deposits. Regression results indicated thatShadow banking only completes the banking system and has no significant impact on loans of the commercial banks in the Housing Finance sector.